EQUITY VALUATION: A CASE STUDY ON MOTHERSON SUMI SYSTEM LIMITED

Abstract

The value of an asset is the future cash flow it can generate discounted at anopportunity rate that reflects the risks of the asset.Thus, the discounted cash flow (DCF) method is widely used to estimate the true value of an asset. On the stock market, the price of equt y or a stock determined by the market may differ from its true value to the extent that it is overvalued or undervalued. In that belief, the investment theory suggests to buy or hold a stock if it is undervalued and not to buy or sell it if it is overvalued. The purpose of this study is to evaluate the fair value of stocks from Mother son Sumi Systems Limited by conducting fundamental analysis on the financial performance of the comp any period 2019to2022. The aim is to find out if Motherson Sumi Systems Limited is a g ood investment by comparing its fair value with the current stock price. The valuation was limited to applying only to public equity, employing only DCF method using FCFF model with historical data, and investment potential is determined solely on estimate value per s hare. Within the limitations, the author found the estimated value per share was Rs.7116, which was lower than the market price of Rs.8277 on March 31st, 2019 when the valuatio n was started. Also Relative valuation also called valuation using multiples is the notion of comparing t he price of an asset to the market value of similar assets.From Relative valuation the aut hor found the estimated value per share was Rs175, which was higher than the market pri ce of Rs160 on March 31st, 2019 when the valuation was started. Hence, the conclusion was that Relative valuation is giving the better and close results on comparing the estimated value with the actual value of year 2019. Also Motherson Sumi S ystems Limited was undervalued and investing in the company would be profitable. The stu dy aims to provide a reference in valuating Motherson Sumi Systems Limited stock price a nd a benchmark to compare with results from other researches to assist investors in making investment decisions. Furthermore, the research can be considere a guide lineof stock valuation for readers who take an interest in equity investment.